Close Brothers banking group to cut 600 jobs and roll out AI ‘at pace’

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The UK banking group Close Brothers is to cut about 600 jobs and roll out the use of AI “at pace” after posting further losses amid a mounting compensation bill for the UK motor finance scandal.The specialist lender said the cuts – almost a quarter of its 2,600-strong workforce – would be made over the next 18 months across its teams in the UK and Ireland.It aims to reduce costs by £25m in the year to the end of September, up from a previous target of £20m, and by another £60m in the next financial year, a year earlier than planned.It said it would make the cuts through outsourcing and offshoring work and reducing office space.“In parallel, we are progressing the deployment of automation and artificial intelligence at pace, providing further opportunity both to reduce costs and enhance customer experience,” the lender added.

The chief executive, Mike Morgan, said: “While the impact on affected colleagues is regrettable, these actions are necessary to structurally lower our cost base while increasing our agility and ability to serve our customers.”Close Brothers, founded in 1878 by William Brooks Close and his brothers Fred and James, revealed the job cuts as it reported a pre-tax operating loss of £65.5m for the six months to 31 March after setting aside another £135m for the car loans mis-selling saga.This marked an improvement on the £102m loss the previous year.The extra sum set aside, which was announced last October, added to its previous £165m provision.

This means it is expecting a bill of about £300m to cover costs from the scandal and comes after the Financial Conduct Authority (FCA) published details of its proposed compensation scheme for drivers who were sold car loans with hidden or unfair commission payments.The FCA will set out its final plans for the redress scheme by the end of this month and has faced pushback from lenders including Close Brothers, Santander and Lloyds Banking Group over its calculations for how much consumers lost out and should be compensated.Close Brothers’ shares slumped 14% on Monday after a short seller, Viceroy Research, claimed the lender would have to at least double its provision for car finance to somewhere between £572m and £1.07bn.The stock fell a further 9.

7% on Tuesday.Viceroy said Close Brothers had “substantially misrepresented” its exposure to the FCA’s redress scheme.The bank said it “strongly disagrees with the report” in a statement after market close on Monday.Dan Coatsworth, the head of markets at AJ Bell, said: “It was telling that the share price didn’t recover any of [Monday’s] slump after Close Brothers denied the accusations were true, suggesting the market remains highly sceptical over the business until there is clarity on any compensation sums.“Job cuts and guidance for higher than previously expected annual cost savings would normally be the right ingredients to drive a share price higher, but not in Close Brothers’ case.

The core business doesn’t look strong enough to warrant investors taking the risk of buying in the face of considerable uncertainty.”Analysts at Panmure Liberum said: “The company is trying to do all the right things in redirecting its lending and attacking costs with gusto.It needs to as the loan book is modestly lower over the half year and income will remain under pressure.The elephant in the room remains motor finance, as it has been for the last two years.“The company could probably withstand a £500m cost without recourse to shareholders.

That still seems fair, but we are no closer to being sure of the outcome.The share price will remain volatile.”As well as reducing costs, the bank is seeking to shore up its balance sheet in the face of the mounting compensation bill, and has sold Winterflood, a broker, and its asset management businesses.
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Sally Berry obituary

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